2 presentation ifrs

8/8/2019 2 Presentation Ifrs

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INTRODUCTIONINTRODUCTIONTOTO

IFRSIFRS


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What is IFRS?What is IFRS?

IFRS stands for International Financial Reporting Standards

Standards and Interpretations issued by IASB

IFRS is a set of international accounting standards stating how particular types oftransactions and other events should be reported in financial statements.


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What is IASB?What is IASB?

IASB ( International Accounting Standard Board)

The International Accounting Standard Board is an independent, private-sector body

that develops and approves International Financial Reporting Standards. The IASBoperates under the oversight of the International Accounting Standards CommitteeFoundation (IASCF). The IASB was formed in 2001.


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IAS Vs IFRSIAS Vs IFRS

Prior to IFRS, International Accounting Standards were used.

The term International Financial Reporting Standards (IFRSs) has both a narrow anda broad meaning.

Broadly, IFRSs refers to the entire body of IASB pronouncements, includingstandards and interpretations approved by the IASB.

However the IAS are still in use until they are superceded by IFRS

Currently 29 IAS and 8 IFRS are effective


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Procedure of Issuing AS (India)Procedure of Issuing AS (India)

ASB of ICAI after consultation with various study groups prepares the draft of AS

The draft as prepared will be circulated to Council members of ICAI and to thespecified bodies like ICSI,ICWAI.CBDT, FICCI, ASSOCHAM, RBI ,SEBI etc for theircomments.

After the meeting with the above bodies the exposure draft is finalized and is issuedto ICAI and public for their comments.

After considering the comments received, the draft is finalized by ASB and submittedto ICAI.

The ICAI if found necessary may with consultation with ASB make requiredmodification and issue the final AS

NACAS to recommend to MCA for notifying the AS as issued to be complied with


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ApplicabilityApplicability

ICAI is of the view that IFRS to be adopted for public interest entities such listed Co,Banking Companies, Insurance entities and large size entities from the Accountingperiod beginning on or after April 2011. The view is further strengthened byconvergence process being initiated by Ministry of Corporate Affairs.

For this purpose, public interest entities are the entities falling under the Category-level 1 as defined by ICAI except that turnover should exceed Rs 100 Crs (Instead ofRs 50 Crs) and borrowing should exceed Rs 25 Crs (instead of Rs 10Crs)

Even if listed company does not fulfill the above criteria for level 1 enterprises, theapplication of IFRS is mandatory.

Early adoption of IFRS is encouraged but it should be the adoption of all IFRS andshould not be on selective basis.

For other entities, IFRS are not mandatory but recommendatory.


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What is Convergence ?What is Convergence ?

Convergence means to achieve harmony with IFRSs; in precise terms convergencecan be considered to design and maintain national accounting standards in a waythat financial statements prepared in accordance with national accounting standardsdraw unreserved statement of compliance with IFRSs, i.e., when the nationalaccounting standards will comply with all the requirements of IFRS.

But convergence doesnt mean that IFRS should be adopted word by word, e.g.,replacing the term true & fair for present fairly, in IAS 1, Presentation of FinancialStatements. Such changes do not lead to non-convergence with IFRS.


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Convergence of AS with IFRSConvergence of AS with IFRS

The ICAI has proposed two option for convergence

1- All at once

2- Stage wise Approach.

But since the stage wise approach leads to non compliance with either of IFRS or AS,hence the all at once approach has been adopted.

First Time adoption

For first time adoption, two key terms needs to be understood:

Reporting date-It is the end of latest period covered by financial statements.

Transition date- It is beginning of earliest period for which an entity presentsfirst full IFRS compliant financial statements.

For an Indian Company, the first reporting date will be 31-03-2012 and transition datewill be 01-04-2010.

Hence, first set of financials shall be for 01-04-2011 to 31-03-2012 with IFRScomparables also to be provided for 01-04-2010 to 31-03-2011.


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Proposed TimelinesProposed Timelines


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WHY IFRS ?WHY IFRS ?

single set of accounting standards would enable internationally to standardizeand assure better quality on a global screen,

it would also permit international capital to flow more freely, enabling

companies to develop consistent global practices on accounting problems.

It would be beneficial to regulators too, as a complexity associated withneeding to understand various reporting regimes would be reduced.

For investors, it gives a better understanding to the financial statements andassess the investment opportunities other than Home Country.

It also benefits the accounting professionals in a way that they will be able tosell their services in the different part of world


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IFRS compliant NationsIFRS compliant Nations

Currently there are over 100 nations across the world where in entities are required toor permitted to use IFRS

The table below provides a snapshot of IFRS acceptability globally.

147Total34IFRS not permitted for listed Companies

4IFRS required for some listed Companies

24IFRS permitted for all listed Companies

85IFRS required for all listed Companies

No of NationsParticulars


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Issues need to be addressedIssues need to be addressed

Right now accounting standards and other reporting requirements are governed byvarious regulators e.g. RBI, SEBI, tax authorities, Companies Act, High courts (foramalgamation etc) . Global standards do not recognize such override by non-standard setters. If the 2011 deadline is to be met then, all these hurdles will have tobe addressed by corresponding amendments in respective laws.

IFRS are largely fair value driven which result in unrealized gain/loss. How are theseto be dealt in Income Tax?

Further, in Fair Value accounting, fair values can bring a lot of volatility andsubjectivity to the financial statements besides requiring a lot of hard work and use ofvaluation experts


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DIFFERENCES (IFRS Vs IGAAP)DIFFERENCES (IFRS Vs IGAAP)

Dif ferences

on the bas is

of

Conceptua l

Accoun t ingFramework

Cont ent o f

F inanc ia lS ta tements

Accoun t ing

Di f ferences


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Summary of Major DifferencesSummary of Major Differences

As per Format Prescribed inSchedule VI for Companies,adherence to Banking Regulationfor Banks etc.

No particular format, a current/non current presentation ofassets and liabilities is used.

Balance Sheet

Comprises of Balance sheet,Profit and Loss A/c. Cash flowstatement (if applicable), andNotes to Accounts

Comprises of Balance sheet,Profit and Loss A/c. Cash flowstatement, changes inequity and accounting policyand notes to Accounts

Components ofFinancialStatements

No needs to prepare reconciliationon first time adoption

Full retrospective applicationof IFRS to PL and BS.Reconciliation of PL and BS inrespect of last year reported

numbers under previousGAAP.

First time adoption

Indian GAAPIndian GAAPIFRSIFRSSubjectSubject


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Over the useful life of theasset, or ScheduleXIV rateswhichever is higher. (AS-10)

Over the useful life of theasset. (IAS-16)

Depreciation

As per Format Prescribed inSchedule VI (AS-1)

No particular formatprescribed (IAS-1)

Income Statement

Level 3 entities areexempted (AS-3)Mandatory for all entities(IAS-7)Cash Flow Statements



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No specific requirement forrevaluation. Revaluation canbe done on systematic basislike for one location leavingaside the assets of otherlocation. (AS-10)

Revaluation (if done) to beupdated periodically so thatcarrying amount does not differfrom fair value at the end period.Revaluation to be done forentire class of assets (IAS-16)

Revaluation


Expensed off. Only expenseswhich increases the FEB areto be capitalized. (AS-10)

Recognized in carrying amountof the assets (IAS-16)

Cost of major repairsand overhaulexpenditure on fixed

assets

Recognized as anappropriation against theprofit, and recorded as liabilityat BS date even if declared

subsequent to reporting periodbut before the approval ofFinancial statements (AS-4)

Liability to be recognized in theperiod when dividend isdeclared. (IAS-10)

Dividends


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There is no concept ofindefinite useful life. Assetshave definite life. (usually 10years)

Intangible assets can haveindefinite useful life andhence such assets are testedfor impairment and notamortized.

Intangible Assets

No such requirement (AS-10)Required each major part ofPPE with a cost that issignificant in relation to total

cost, should be depreciatedseparately (IAS-16)

ComponentAccounting

Disclosure of EPS in bothconsolidated and separatefinancials. (AS-20)

Disclosure to be made in onlyconsolidated financials of theparent Co. (IAS-33)

Earnings Per Share


Considered as change inaccounting policy, retrospectivecomputation and excess ordeficit is adjusted in sameperiod. Required to be

disclosed(AS-6)

Considered as a change inaccounting estimate. To Beapplied prospectively. (IAS-16and IAS 8)

Change in the methodof depreciation


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Excludes non executivedirectors. (AS-18)

Includes Executive as well asnon executive directors (IAS-24)

Key ManagementPersonnel (KMP)

AS-18 does not require the

break up of compensationcost.

Disclosure to be made for total

compensation such as shortterm employee benefits andpost employment benefits

Compensation to

KMP

Schedule VI to theCompanies Act, 1956specifies Indian Rupees asthe reporting currency.

(AS-11)

Requires the measurement ofprofit using the functionalcurrency. Entities may, however,present financial statements in a

different currency. (IAS-21)

Reporting Currency



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Disclosure to be made innotes (AS-5)

Prohibits such disclosure (IAS-1).No such term in IFRS

Disclosure of extraordinary items

Policies may differ due toimpracticability. (AS-21)

Prepared using uniformaccounting policies across allentities in a group. (IAS-27)

Uniform AccountingPolicies


Disclosed as a separate itemafter profit before tax on theface of the incomestatement.

Included as part of relatedexpense (fringe benefit) whichgives rise to incurrence of thetax.

Fringe Benefits Tax


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Areas involving choicesAreas involving choices

SLM, WDVSLM, WDV, Units of Productionmethod

Depreciation Methods


To be capitalizedExpense or capitalizedBorrowing Costs

Only indirect methodUsing direct or indirect methodsCash FlowStatements


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Current Status of ConvergenceCurrent Status of Convergence

ICAI is under the process of issuing IFRS equivalent AS (the current status is given innext slides)

Constitution of a Core Group to liaison with various govt and regulatory authorities toidentify the inconsistencies in various laws and regulations and to make necessary

amendments/ modifications to remove the differences (Refer next slides)


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Progress so far in ConvergenceProgress so far in Convergence

ProcessProcess

2Accounting Standards which are not being revised ascorresponding IFRSs

5

8Drafts which are under preparation4

5ASs, which are to be issued pending insignificantmodifications

3

20Drafts considered by ASB and have been circulatedamong specified bodies for comments

2

2ASs cleared by Council of ICAI and NACAS fornotification.

1

No ofStandards

Position of IFRS equivalent ASS NO


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Identification of InconsistenciesIdentification of Inconsistencies

Between various Laws andBetween various Laws and

RegulationsRegulations Constitution of a Group to Liaison with Governmental and Regulatory Authorities

Group has constituted separate Core Groups to identify inconsistencies betweenIFRSs and

Companies Act

SEBI Regulations

Banking Laws & Regulations

Insurance Laws & Regulations


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What has been done so far byWhat has been done so far by

the Group?the Group? Inconsistencies between Companies Act and IFRSs identified

Draft Schedule VI consistent with IFRSs formulated- should be made effectivefrom 1-4-2011

Inconsistencies between SEBI Mutual Fund Regulations and IFRSs identified

Examination of other SEBI Regulations in progress


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LIST OF IFRSLIST OF IFRS IFRS 1 First-time Adoption of International Financial Reporting Standards

IFRS 2 Share-based Payment

IFRS 3 Business Combinations

IFRS 4 Insurance Contracts

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

IFRS 6 Exploration for and evaluation of Mineral Resources

IFRS 7 Financial Instruments: Disclosures

IFRS 8 Operating Segments


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LIST OF IASLIST OF IAS IAS-1-Presentation of Financial Statements

IAS-2- Inventories

IAS-7- Cash Flow Statements

IAS-8- Accounting Policies, Change in Accounting estimates and Errors

IAS-10- Events after balance sheet date

IAS-11- Construction Contracts IAS-12- Income Taxes

IAS-16-Property, Plant and Equipments

IAS-17- Leases

IAS-18- Revenue

IAS-19- Employee Benefits

IAs-20-Accounting for Govt Grant and Disclosure of Govt. Assistance IAS-21- Effect of Changes in Forex Rates

IAS-23-Borrowing Costs

IAS-24- Related Party Disclosures


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LIST OF IASLIST OF IAS

IAS-26- Accounting and reporting by retirement benefit plans

IAS-27- Consolidated and Separate Financial Statements.

IAS-28- Investment in Associates

IAS-29- Financial Reporting in Hyperinflationary Conditions

IAS-31- Interest in Joint Ventures

IAS-32- Financial Instruments- Presentation

IAS-33- Earning Per Share

IAS-34- Interim Financial Reporting

IAS-36- Impairment of Assets

IAS-37- Provisions, Contingent Liabilities and Contingent Assets

IAS-38- Intangible Assets

IAS-39- Financial Instruments: Recognition and Measurement

IAS-40-Investment Property

IAS-41- Agriculture

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